OfficeMax Inc. reported its biggest profit in two years Thursday as cost-cutting and other moves undertaken as part of a drastic turnaround plan helped generate a modest gain despite unimpressive sales. Its stock hit a new all-time high.
The No. 3 office supplies retailer, which closed 109 underperforming stores in early 2006, also said it is growing again. It opened 10 new stores in the quarter, plans to add 30 to 40 more in the fourth quarter, and intends further expansion next year as it chases Office Depot Inc. and Staples Inc. in the office superstore industry.
In another sign of its slowly recovering health, the Naperville, Ill.-based company said it is remodeling about 20 of its 884 stores this year and plans to roll out a multi-year remodeling program in 2007.
OfficeMax, which recently moved its headquarters from nearby Itasca, has been improving its supply chain, cutting costs and boosting operating margins in an effort to turn around financial performance.
Net income after preferred dividends was $30.4 million, or 41 cents per share, compared with a loss of nearly $5 million, or 7 cents per share, a year earlier.
Excluding severance and restructuring items, the company said earnings were $43.2 million or 56 cents a share, or a penny better than the consensus estimate of analysts surveyed by Thomson Financial.
Revenue fell 1.9 percent to $2.24 billion from $2.29 billion, reflecting the store closings and the company’s elimination of mail-in rebates. Same-store sales – those from its retail stores open more than a year – were flat.
But investors were impressed with the company’s continuing comeback from four straight money-losing quarters that ended in the second quarter.
Shares rose $1.78, or 3.9 percent, to close at $47.90 on the New York Stock Exchange after reaching a new record high – adjusted for splits – of $48.03. The stock is up 89 percent this year.
“Our efforts to focus on profitable sales have been productive and clearly led to better bottom-line performance in 2006,” Chairman and CEO Sam Duncan said on a conference call.
Goldman Sachs analyst Matthew Fassler called the company’s improvement in operating earnings “another dramatic increase,” attributable in part to better expense control in the retail stores.
“The bar is still low for OfficeMax on the sales front, though we would begin to hope for stronger revenue growth (from its business-customers market) given the robust state of that market,” he said in a note to investors.
Revenue from its contract segment, for business customers, increased by 1.2 percent.
The company said more effective promotional activity boosted its gross margins in the quarter.
It said cash flow from operations has improved to $340 million so far in 2006 compared with a negative $101 million last year.
“That represents a $441 million swing in cash flow, quite an accomplishment, and an important aspect of our turnaround,” Duncan said.
OfficeMax forecast that 2006 operating income margin would be in the middle of a previously announced range of 3 percent to 3.5 percent.
For the first nine months, the company reported earnings after preferred dividends of $30.7 million, or 42 cents per share, compared with a loss of $34.1 million, or 42 cents per share, a year earlier. Revenue was $6.71 billion, virtually unchanged from $6.7 billion for the same period of 2005.
